JSE works to improve its offering for all companies

The JSE Limited posted strong results for 2013 – the best since our listing in 2006. Group earnings after tax increased by 68 percent to a record R507 million.

The JSE has eight diversified revenue streams and although most divisions performed well we saw substantial growth from our equity market, post-trade services and market data divisions.

Our equity market remains our biggest revenue generator at 26 percent but post-trade services is becoming increasingly important for the JSE because its responsibilities include risk management and the clearing and settlement assurance of our equity and derivative transactions.

The global financial crisis in 2008 revived the role that risk plays in the financial markets. We have seen tremendous growth in our markets over the past year and with growth comes an increase in risk.

The JSE has therefore made significant investment into our post-trade operations. We, together with others, have created a mutualised default fund to which the JSE contributes R100m and have put in place liquidity lines to protect our market against sudden liquidity squeezes.

We have introduced a new margin methodology for the derivatives market, stress testing and back testing – tools designed to assure settlement and to reduce the risk to investors of failed trades.

In our equities market we are also in the process of reducing our settlement cycle from five to three days. This will reduce the number of unsettled trades at any point.

Our market data division promotes, markets and sells live, statistical, historical and end-of-day data from all JSE markets. It is also responsible for the licensing of all products tracking all indices.

In 2013 its revenue increased 20 percent due to increasing demand from international clients and increased demand for licensing of product-tracking indices.

During the year 54 new clients (24 local and 30 international) signed up for our data services. In 2014 the division will continue to focus on expanding its international client footprint and launching new indices and other market data products.

Mining Indaba

Mining shares have always been an important part of the JSE’s DNA and we had a strong presence at the recent Investing in African Mining Indaba. South Africa can justifiably be proud of annually hosting one of the largest mining investor conferences of its kind in the world.

There can be no doubt that over the years the Mining Indaba has been the catalyst for billions of dollars of foreign investment flowing into the African continent. Among the 8 000 delegates there will always be entrepreneurs on the lookout for long-term capital for mining ventures on the continent and we believe that the JSE, a world-class African stock exchange, offers a good value proposition for them.

Ivan Glasenberg, the chief executive of Switzerland-based Glencore Xstrata, highlighted his group’s confidence in Africa as a place to invest and the JSE as a listing venue during his speech at Glencore Xstrata’s listing last year.

As the JSE’s chief executive, Nicky Newton-King, says: “A multinational company of Glencore Xstrata’s size and stature selecting the JSE for its secondary listing amounts to a major accolade for the exchange.

“The listing reflects well on South African financial markets and sends a positive message to potential issuers both locally and internationally.”

The recent secondary listing on the JSE of Camac Energy, a Houston-based oil and gas exploration company, confirms the JSE’s ability to draw top international resource investors.

Our mining sector remains vital for the economic well-being of our country. First, it is the largest generator of foreign capital and, second, it directly employs about half a million people. It is estimated that each one of these wage earners has 10 dependants.

With the mining industry moving inexorably towards mechanisation and less labour-intensive methods of production, it is in everyone’s interest that the strikes on our mines are resolved quickly by the collective leadership so as to sustain the continued employment of a high number of people.

The African growth story was still a strong topic of conversation at the Mining Indaba so it does not surprise me how many JSE-listed companies are now looking for growth and expansion in other countries in Africa. I can think of more than 20 off the top of my head.

The JSE is also a listed company and we are continually exploring avenues in Africa for new opportunities. We have been playing our part by annually hosting seminars for African stock exchanges on building African financial markets and we will host the third of these seminars in September.

However, as a colleague pointed out, investing in Africa is not a quick T20 game of cricket. It is more like a five-day Test, which requires patience and can often end in a draw.

It is interesting to note that the JSE was established in 1887 to service the gold mining industry. In the 1888 and 1889 gold rush there were 300 gold mining companies on the JSE, with 750 stockbrokers in attendance.

Over the past decade, consumer goods has overtaken resources as the biggest sector on the JSE, contributing 26 percent of the JSE’s market capitalisation of R10.5 trillion. Resources is second with 23 percent and the financials sector is third with 18 percent.

Today mining companies comprise 18 percent of the 165 companies that make up the FTSE/JSE all share index, with Glencore Xstrata and BHP Billiton accounting for 33 percent and 31 percent, respectively, of the market capitalisation of the overall mining sector.

In my previous column, in the middle of November, I mentioned that the JSE building was in the midst of being made more user friendly. I added that we were enlarging our main electronic board to profile the whole market, not just equities, and were building two television studios and a radio studio on the first floor.

We have also been upgrading the technology in our events venues. I can confirm that these renovations are now complete, with two international business television channels, Bloomberg and CNBC Africa, broadcasting from the television studios and PowerFM and Biznews.com occupying the radio and online space.

This means that the JSE will be able to increase our investor relations services to all our listed companies.

I believe the need for investor relations for businesses of all sizes can be best summarised by these words I heard at an investor relations presentation:

I don’t know who you are

I don’t know your company

I don’t know your company’s product

I don’t know what your company stands for

I don’t know your company’s record

I don’t know your company’s reputation

Now – what was it you wanted to sell me?

In 2012 the JSE surveyed its listed companies to find out if they had the skills needed to identify local and international investors, talk to the market, build their company profiles, fulfil their listing obligations and enhance their corporate governance. The survey also asked issuers about the areas in which they most needed the JSE’s help to bridge the divide between themselves and investors. Altogether 119 companies responded to this survey.

As a result of the feedback from this survey the JSE is working towards becoming a one-stop shop for issuers wanting to attract investors, communicate with the market and manage the risks and requirements of being listed.

We also wish to help issuers to achieve their listing aims and to improve their experience of being listed. We are planning to expand our invitation to companies to hold their results presentations and meetings at the JSE as well as hosting events to inform employees of listed companies of what it means to work for a listed entity. For further information please contact Carol Crozier at our issuer services division on [email protected]

Celebrating Nelson Mandela

As 2013 drew to a close, we mourned former president Nelson Mandela, who passed away on December 5.

As a sign of respect, all JSE markets were paused for five minutes at 11am on December 6. This reminded me of the impact he made with his visit to the old open outcry floor. All trading activity simply came to a halt.

Madiba’s passing drew South Africans from all walks of life together. Our country needs to find new ways to cherish his ideals as we move forward.

Welcome to our new chairman

My retirement after the JSE’s annual general meeting in May gives me the opportunity to welcome Nonkululeko Nyembezi-Heita, whom the board has unanimously proposed as the JSE’s new independent non-executive chairman from the day after the annual general meeting. I am delighted to welcome her on behalf of the board.

She joined the JSE’s board in June 2009 as a non-executive director, having been chairman of the Bond Exchange of SA, which the JSE acquired that year.

As chairman, Nyembezi-Heita will bring to the table a sharp, analytical mind and rigorous attention to the value of potential new projects, as well as the ability to ask the tough questions. I am certain that she is the right person for the job.

* Humphrey Borkum is the chairman of JSE Limited.

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